Contract Law Basics

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Questions and Answers

Which type of agreement restricts a vendor from engaging in similar business in competition?

Non-disclosure agreement

Franchise agreement

Partnership agreement

Restraint of trade agreement (correct)

What does Prima Facie mean in the context of restrictive covenants?

Void on first appearance (correct)

Legally binding under all conditions

Enforceable in court

Accepted without further proof

What is a key characteristic of a valid contract?

It can be enforced regardless of legality.

It requires mutual consideration. (correct)

It must involve a formal ceremony.

It must be made in writing.

Which of the following actions could lead to the absence of genuine consent in a contract?

Undue influence from another party Signup and view all the answers

Which of the following is NOT a requirement for a contract to be valid?

The contract must be agreed upon verbally. Signup and view all the answers

What does 'public good' refer to in the context of contract legality?

The courts' willingness to enforce rights against public interests. Signup and view all the answers

Which situation could NOT represent un-permitted work?

Executing construction with all necessary permits Signup and view all the answers

What must exist for a valid contract regarding voluntary action?

Genuine consent from all parties Signup and view all the answers

Which aspect of a contract must always be legal to ensure its validity?

The consideration involved. Signup and view all the answers

What occurs when a contract is contrary to criminal law?

It becomes void and unenforceable. Signup and view all the answers

Which of the following categories does NOT relate to unauthorized work?

Contracts signed in compliance with laws Signup and view all the answers

Which of the following is NOT a factor that can invalidate voluntary consent?

Unwritten agreements Signup and view all the answers

Which of the following situations would typically render a contract invalid?

A contract for an illegal activity. Signup and view all the answers

Which of the following best describes un-licensed work?

Agreements lacking required licenses Signup and view all the answers

What is the significance of mutual consideration in a contract?

It implies both parties must provide some value. Signup and view all the answers

What could potentially violate the principle of 'restraint of trade' in a contract?

A contract preventing a person from working in a certain industry indefinitely. Signup and view all the answers

What constitutes a material fact in a contract?

A fact that influences a party's decision to enter into a contract. Signup and view all the answers

Which of the following best describes innocent misrepresentation?

A false statement made genuinely believing it to be true. Signup and view all the answers

What is a common remedy for fraudulent misrepresentation?

Contract rescission and potential legal action for damages. Signup and view all the answers

In the context of misrepresentation, which situation exemplifies negligent misrepresentation?

Selling a car while unaware it has a significant mechanical defect. Signup and view all the answers

What is the primary goal of rescission as a remedy?

To restore parties to their pre-contract conditions. Signup and view all the answers

Which of the following scenarios would likely not involve a material fact?

The aesthetic preference of the buyer. Signup and view all the answers

How can fraudulent misrepresentation affect legal consequences?

It may result in both rescission and tort liability. Signup and view all the answers

Which statement is NOT true regarding misrepresentation?

Misrepresentation must always be intentional to be actionable. Signup and view all the answers

What is negligent misrepresentation defined as?

A false statement of a material fact made carelessly Signup and view all the answers

Which of the following best describes duress in a legal context?

Pressure that involves unlawful threats or violence Signup and view all the answers

Which of the following scenarios best illustrates undue influence?

A therapist convincing a patient to change their will Signup and view all the answers

In what circumstance might punitive damages be awarded?

When simple rescission of a contract is not possible Signup and view all the answers

What is a common characteristic of negligent misrepresentation?

It involves a false statement made due to carelessness Signup and view all the answers

Which of the following best represents a power relationship that could lead to undue influence?

A parent urging their child to take a specific career path Signup and view all the answers

When does non-disclosure relate to negligent misrepresentation?

When material facts are neglected due to carelessness Signup and view all the answers

What must a person do upon experiencing duress?

Repudiate their agreement as quickly as possible Signup and view all the answers

What characterizes a mistake of fact?

An error about the identity of the contracting party Signup and view all the answers

Which statement correctly describes a unilateral mistake?

One party is mistaken about their own understanding Signup and view all the answers

What can potentially void a contract due to an obvious mistake?

A clearly erroneous quote Signup and view all the answers

Which scenario describes a mutual mistake?

Both parties believe a specific item exists when it does not Signup and view all the answers

What does 'Caveat Emptor' imply in the context of contract mistakes?

Buyers assume the risk of purchasing faulty goods Signup and view all the answers

Which of the following is NOT characterized as an obvious mistake?

Mistakes based on market trends Signup and view all the answers

What is required for a contract to be enforceable when a mistake has occurred?

An obvious mistake that both parties acknowledge Signup and view all the answers

What happens when one party commits a unilateral negligent mistake in contract negotiations?

Caveat Emptor applies to protect the other party Signup and view all the answers

Study Notes

Capacity and Consideration

Persons may not have legal capacity to enter contracts
Mutual consideration is an exchange of value
Caveat emptor - let the buyer beware

Valid Contract

A valid contract is a deliberate agreement between at least two competent parties, supported by mutual consideration, to do some legal act voluntarily

Legality

For a contract to be valid and enforceable, it must be legal
The consideration and subject of the contract must also be legal

Contrary to Statute

A contract that is contrary to the criminal code is illegal
Contracts may be illegal under other acts such as the Competition Act or Workers Compensation Legislation

Public 'Good' or 'Policy'

Public policy prevents the courts from enforcing rights that are contrary to the general interests of the public
Public policy can also affect legal interest rates for private lenders

Restraint of Trade: Categories

Contracts in restraint of trade fall into 3 categories:
- Contrary to the Competition Act
- Agreements between business sellers and purchasers restricting the vendor from engaging in similar business in competition
- Agreements between employees and employers restricting the employee's right to compete with the employer

Restraint of Trade: Covenants

Contracts in restraint of trade create restrictive covenants
Restrictive covenants are considered void on first appearance (prima facie)

Un-licenced Work

Contracts between unlicensed tradespersons and professionals and a contracting party may be illegal. This applies to professions like engineering, architectural, electrical, and more

Un-permitted Work

Construction work without a permit is illegal or un-permitted
Be sure to check local city licensing and permitting requirements

In order to create a valid contract, one must give genuine consent - which means acting voluntarily
Vitiating factors can affect a contract's validity and include:
- Misrepresentation
- Undue influence
- Duress
- Mistake

Misrepresentation: Material Fact

A material fact leads to or brings about a contract
For example:
- The color of a car may be important to a buyer, while type of stereo may not be.

Misrepresentation: Categories

Three different categories of misrepresentation exist:
- Innocent
- Fraudulent
- Negligent

Innocent Misrepresentation: Definition

A false statement of a material fact made by a party that honestly believed the fact to be true

Innocent Misrepresentation: Example

A seller mistakenly believes a parcel of land is zoned for high rise buildings, when in fact it is not. This is an innocent misrepresentation.

Innocent Misrepresentation: Remedy

Contract rescission is the revocation of a contract
Rescission restores the parties to their pre-contract state

Fraudulent Misrepresentation: Definition

A false statement of a material fact made with the intent to deceive.

Fraudulent Misrepresentation: Example

Selling a diamond ring that is actually crystal.

Fraudulent Misrepresentation: Remedies

Contract rescission if possible
Sue for damages
May include punitive damages due to fraudulent nature of the misrepresentation
May also be considered a tort of deceit

Negligent Misrepresentation: Definition

A false statement of a material fact made due to a person's negligence. Non-disclosure may also be considered negligent misrepresentation.

Negligent Misrepresentation: Example

Esso provides franchise information that is completely inaccurate.

Negligent Misrepresentation: Remedies

Contract rescission if possible
Sue for damages
May include punitive damages

Undue Influence: Power Relationships

In law, certain "power relationships" exist and can impact voluntary action and consent
Positions of elevated status, higher education, family ties, medical professionals, and others possessing undue influence may affect a person's ability to consent to a contract

Duress: Definition

Duress occurs when unlawful pressure is used to compel someone to agree. This pressure can be violence or threats of violence towards the person or their family.

Duress: Action

One cannot be acting voluntarily when under threat of violence.
It is important to repudiate (reject) the contract quickly.

Mistake: Definition

Mistake is defined as:
- An erroneous opinion as to the identity or existence of the subject matter or some other important term of a contract

Mistake of Fact: Definition

Mistake as to the existence of the subject matter of a contract or the identity of a party.

Mistake of Fact: Subject Matter

Example: A boat is sold when it no longer exists, such as in the case of a fire destroying the vessel.

Mistake of Fact: Identity of a Party

Parties to a contract cannot be mistaken as to the identity of the party with which they are contracting.

Mistake: Unilateral vs Mutual

Unilateral Mistake: One party is mistaken. This can resemble misrepresentation.
Mutual Mistake: Both parties are mistaken.
- Rectification may be possible.

An Obvious 'Mistake'

If a mistake is obvious, a potential contract may be void
If a mistake is obvious on the face of a quote, for example.

Unilateral Negligent Mistake: Caveat Emptor

Caveat Emptor (let the buyer beware) applies where one party makes an error with regard to the adequacy of consideration in a contract.

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Description

This quiz covers essential concepts of contract law, including capacity, consideration, legality, and public policy. Understand the criteria for valid contracts and the implications of agreements that may be contrary to statute or public good. Test your knowledge of how these principles apply in legal contexts.